Explaining Japan's Recession

Volume 5, No. 2 (Summer 2002)

Japan has experienced an Austrian business cycle. The initial boom was created by a central bank–induced monetary expansion. Because of repeated interventions, the economy has not recovered. The greatest malinvestments took place in capital-intensive industries in the earlier stages of production. For Japan’s economy to recover the government must stop intervening in the economy and allow the market process to realign the structure of production to match consumer preferences.